After Socially Responsible Investment (SRI), the attention is now on impact investing. According to GIIN, the market has been growing rapidly since it first appeared just over a decade ago. In its most recent report, the network estimates impact investing’s value to be approximately $500 billion (1). There is clear predominance in the American market, which accounts for 60% of the 1,340 actors identified as having "impact investing" practices.
But France, and more generally Europe, has also followed the movement. From pioneers such as Citizen Capital to classic banks such as BNP Paribas, pension funds such as PGGM, and management companies like Sycomore and M&G Investments, financial players across all sectors are now claiming that the future of sustainable finance will come from positive impact investing in the economy, the people and the planet.
A positive contribution for the planet and the people
No longer is it simply a question of showing that a given financed activity did not harm the planet or society. The activity must be proven to have positive effects (by contributing to the development of biodiversity, clean energy, access to healthcare and employment opportunities for local populations), and be able to quantify them and project them into the future.
Such an ambition gives new meaning to a sector seeking respectability from a population increasingly demanding transparency from the financial sector on its contributions to the real world and to a sustainable economy.
To date, there is no official definition for ‘impact investing’. However, some key elements have emerged to help define it. First, the intention behind the investment of an activity must be motivated by the objective of helping to ameliorate a social or environmental problem, not financial performance (even if this is still desired). Philanthropy is not a question in this case. Additionally, it is necessary to show that this positive socio-environmental impact would not have been possible without investment in the given activity. This involves both transparency and measurement tools (concerning the profits and the beneficiaries), which are two key elements of impact investing that ensures its credibility and effectiveness.
Financial scalability without losing integrity
As with green finance, clarification is still needed. It will ensure the "scalability of financial guarantees in impact investing without losing its integrity," says GIIN, while also providing a better evaluation of the market. GIIN states that its market estimate includes a margin of more or less 10% due to interpretation of what is considered ‘impact investing’ being left to investors. The most obvious case is green bonds or investments in renewable energies that investors can define as green finance alone, without integrating it into their impact investing statement.
Several ongoing projects are trying to clarify the situation. The GINN, which refers to this issue at the international level, has just published a report attempting to precisely define the different elements at the heart of impact investing, and their scope. Another international project carried by the heavyweights in this sector (GIIN, PRI, UNEP-FI, GRI, SASB) is that of the Impact Management Project which works more specifically to establish a consensus on impact measurement. This is a more complex topic than that of green finance because it involves multiple issues, in particular social ones, which are more difficult to evaluate, as well as reporting issues.
At the center of this work is the SDGs, or the famous United Nations Sustainable Development Goals. They provide a common framework for investors and issuers (companies) to assess their contribution to the main priorities of economic development that is respectful of people and the planet, as defined by consensus in the United Nations framework. So far, some $3 trillion (mainly in developing countries) is missing annually, preventing the fulfillment of the 17 SDGs. This is far from being an insurmountable situation - the money is there - and the drive for impact investing is leading the way.
Béatrice Héraud @beatriceheraud
(1) The GIIN "Sizing the Impact Investing Market" report, published on 1 April 2019, is available here.